DoE says force majeure invocation on power deals up to contracting parties

By Adam J. Ang – September 6, 2020 | 6:44 pm
from Business World

THE parties to a power contracts have the final say in relaxing the terms of their deals and invoking force majeure, the Department of Energy (DoE) said, rejecting calls from consumers for the government to intervene.

“While the DoE supports any action that will result in the least-cost power supply to the consumers, we respect the contracts between industry participants as approved by the ERC (Energy Regulatory Commission),” DoE Assistant Secretary Redentor E. Delola said in an e-mail interview.

“The invocation of force majeure events will always depend on the provisions of the contracts stipulated by the concerned electric power industry participants,” he added.

A force majeure event is an uncontrollable event that makes it impossible for contracting parties like power plant operators to fulfill their obligations. The pandemic should be considered such an event, Laban Konsyumer said in a statement last month.

“(T)here is no provision in the EPIRA (Electric Power Industry Reform Act) giving the government authority to intervene in approved power supply contracts on the ground of force majeure. The right to invoke force majeure usually belongs to one of the contracting parties,” Ranulfo M. Ocampo, president of the Private Electric Power Operators Association (PEPOA) said.

There are a “handful” of private electricity distributors that have eased their contracted terms since the community quarantine started, Mr. Ocampo said.

Among them is Manila Electric Co. (Meralco), the country’s largest distribution utility. It was able to save P1.9 billion from invoking force majeure provisions in its contracts, which lowered its generation charges to consumers. The bill component is now at P4.1241 per kilowatt-hour.

“Right now, the force majeure claim of Meralco in its franchise area is very effective and can act as a jump-off point or peg for other parties willing to join the mission to better serve customers,” Laban Konsyumer President Victorio A. Dimagiba said.

“We demand that ERC and PIPPA members immediately look into the situation and assess leading the charge and making all DUs (distribution utilities) and ECs (electric cooperatives) follow suit on what was done in Metro Manila and do their own execution of force majeure claims,” he added.

In April, the Philippine Independent Power Producers Association, Inc. (PIPPA) said generation companies cannot just relax their contracts with distribution utilities as it will affect their operations and it will disrupt the power supply chain.

In the case of electric cooperatives, it is also not possible to require all of them to modify their supply agreements, considering the varying levels of impact of the pandemic on their operations, ERC Commissioner Floresinda B. Digal said in May.

“As long as the conditions in the PSA (power supply agreement) are met, there should be no issues in invoking force majeure,” Mr. Delola said.

“The entire value chain as much as possible must be kept whole, while ensuring that the consumers are not burdened by paying for quantities that are unutilized,” he added.